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Sunday, November 9, 2008

Like Yves Smith says, the Chinese stimulus package puts into context America's puny stimulus efforts thus far. Yves, however, confuses the numbers a bit by converting everything into dollars at PPP exchange rate. Much better to stick to thinking about this in terms of national currencies:

The Chinese have announced plans to spend 4 trillion yuan for "transportation networks, ecology, technical innovation and post-disaster reconstruction" to stimulate their economy. That amounts to 16.2% of GDP (which was 24.67 trillion yuan in 2007).

In contrast, the U.S. $150 billion package passed earlier to this year is equivalent to just 1.1% of GDP (which was $13.84 trillion in 2007).

Put in other terms, a U.S. stimulus of the same size as the Chinese package (proportional to GDP) would amount to $2.2 trillion.

That's the kind of rocket-powered stimulus we need! I would say that we could learn from the Chinese Keynesians, but Obama's team is already ready to roll with similar plans. It's great to see that all signs are that Obama is ignoring the New Hoovers and planning a "big bang" investment package. Job 1 right now is preventing what will be a severe recession from turning into a 2nd Great Depression, and it is absolutely not the time to be worried about short-run deficits.

5 comments:

The Chinese have no social safety net. Add the spending on Social Security to the U.S. bailout. They have no unemployment benefits. Add the unemployment spending. Medicare spending. And haven't we had a couple of trillion in bailout and balance sheet accommodation for the banks?

The floor to the Chinese economy is much further down. It is a country where everybody hoards against old age and want, they would be much better off providing basic social security benefits.

While they may be building the bones with more infrastructure and so on, maybe they need to pay attention to the muscle as well.

I cling to my larger point, however, and I wonder whether even that immense spending will do what they want it to do. While a similar size stimulus in the U.S. -- in terms of percent of GDP -- could not even be rationally administered.

Do you not think that the enormous savings rate of the Chinese reflects the social insecurity of the country? The one child policy basically removed the former retirement scheme. This savings rate strangles any multiplier. If the idea is to generate consumption from the inside of the country, they need to do it among the masses, not just from the crust of middle class. And in order to do that, they need to create a base of security.

Is my thought.

Though I am less expert than you, as I have already amply demonstrated.

I don't see the problem in administering a large stimulus. Anyway, I don't really think the U.S. should be thinking about a stimulus of 16% of GDP. But we should be looking at something more than just a couple $100 billion.